yippeecallao

Chavez's Recent Statement Positive For Crystallex

Manny – let me first say that I find you are a refreshing voice of moderation and reason on the message boards and always look forward to reading your intelligent and well-written posts which have recently appeared on Yahoo (and now here).

I'm afraid, however, that I must politely disagree with you in this instance. I am not arguing for or against the fortunes of Crystallex in Venezuela, just pointing out what I consider to be flaws in your argument that it is necessarily the case that “<strong>Chavez'... Recent Statement [is] Positive For Crystallex</strong&...

Please do not take my criticisms of your argument personally; rather consider it in the spirit of a friendly &amp; polite debate.

That said, let me go through your well-organized (but in my humble opinion, unsupported) statements (which I’ve hopefully put in <strong>bold<... – we’ll see once I hit the “add comment” button if my rusty HTML skills are up to the task!) point by point:

<strong>1. KRY is being discussed at the highest level of government, meaning that decision makers are present and being considered</strong&... [and <em>“It's not that he was asked specifically about KRY, rather, he used them as THE EXAMPLE. This is extremely positive.”</em>]

According to the Dow Jones story, President Chavez says he is waiting for a report on Las Cristinas from his Mining Minister (note the distinction between Las Cristinas vs. Crystallex). Yet, it is the Ministry of Environment (MinAmb) who are responsible for issuing the long-awaited Environmental Permit. What exactly is the nature of the Mining Minister’s report, given the Ministry of Mines &amp; Basic Industries (MIBAM), which the Mining Minister heads up, apparently approved the this same Las Cristinas project back in March, 2006?

It would suggest, at least to me, that there are broader issues being contemplated with regards to Las Cristinas. Furthermore, it should be noted that it could be the case that in this instance the President uses the terms “Las Cristinas” and “Crystallex” interchangeably, but we cannot be certain of that, and therefore, we cannot ascribe more meaning to his statement than is evident.

According to the Bloomberg story, President Chavez said that his administration is continuing to work with Crystallex. This would imply to me that the company is aware and involved in the discussions, at least at some level. What those discussions are is anyone’s guess, as they have not been disclosed, other than the company’s repeated statements to investors that they know of no impediments to the project (there have not been any discussions about the Mine Operating Agreement being changed to a state-majority joint venture, etc.) nor to the long-awaited Environmental Permit (final stage of the process, imminent, by Easter, etc.).

I agree that discussions taking place within the highest levels of the Chavez administration does appear to be fact. This could be good news, or it might not – but before we can determine its outcome one way or the other, we have to recognize that it is wholly dependant upon what exactly is being discussed, why, and what are the motivations or agendas of the decision-makers and their influencers.

I am not convinced we have enough information to make that determination yet; and therefore, we can make no conclusion as to the impact of the outcome.

I am afraid I haven’t seen anything in the Bloomberg, Dow Jones, or the transcript of the press conference (supplied by VTV) that would support your assertion
that President Chavez spontaneously mentioned Crystallex, rather than being asked specifically about the company. Even if that were true (I will concede you may have sources that I am unaware of who may have given you unreported first-hand accounts of this), my points above, that we cannot know the significance of this one way or another stand.

<strong>2. Chavez is not a fool, regardless of what you think about his policies. </strong>

I agree with you that he is not a fool (and must also confess that I typically don’t agree with his policies, but as you imply that’s another matter separate from the real issues here).

While it may or may not be the case that President Chavez is aware of the frustration that Crystallex (and presumably its shareholders) has been suffering, I do not understand how the statement attributed to him by Bloomberg (that his administration is continuing to work with the company), which I presume you are referring to, must necessarily be seen <em>“an effort to appease that [sic] management and show support.” </em>

You are quite right, if the Bloomberg quote is correct, he didn’t say “the government is continuing to work <em>against</... Crystallex” (he apparently said <em>“with”</e... but can we really jump to the conclusion that it is an effort to show support to beleaguered Crystallex executives? Perhaps neither of us have any real proof to argue definitively on either side of this point, so I’ll just have to say I am not so sure your position is defensible (though, of course, it could actually be the case – it’s just not provable with the facts as known).

<strong>3. Chavez is also feeling tremendous internal pressure.</strong&g...

You are right that unemployment - particularly in this area of Bolivar State - is very high, and this is causing considerable social problems, too. I agree that Crystallex will generate local employment should the project finally be green-lighted, but if it is true that most locals are artisanal miners, they probably do not have the skills to operate a commercial mine. Training programmes will go a long way to remedy this, and some of the miners that have been displaced by Gold Fields' PGM subsidiary at Cuacia could be hired, as well as others from Raúl Leoni, Paragua and elsewhere in El Callao, including other miners who have been laid off elsewhere. If the other Crystallex mines in El Callao are reaching the end of their mine life, workers from Tomi &amp; Minera Bonanza could also be transferred to work the Las Cristinas project. But, I do not think that is going to create thousands of direct jobs.

This said, I think we have to acknowledge the existence of alternatives to resolve this chronic unemployment problem that do not necessarily require the exclusive participation of foreign multinationals. In the context of a country with a strong socialist government, some alternatives might be considered by the Venezuelan government that would probably not even come to the table in Western capitalist economies.

Small miners and some politicians have called for “Nationalization” of the mining industry (and some properties in particular, including not just Las Cristinas, but also those operated by Hecla and Gold Fields), suggesting that state majority-owned joint ventures in the form of an “Empresa de Producción Social” (EPS) could be established with the small miners. Whether or not there still a role for commercial miners to play in such a scheme remains to be seen, but it is definitely a socialist approach and I think you will agree that Venezuela is a socialist nation. So, even if it might be anathema to our capitalist or even classical liberal economic mindsets, I would not be surprised if some in Venezuela's political and labour circles would find such an approach appealing.

<strong>4. Lastly, I would offer that it's very healthy that KRY has not issued a public statement supporting or commenting on the Chavez statement. </strong>

I agree that at this stage, the best course of action from the company's standpoint is to remain silent. I am not sure, however, that that necessarily coincides with what shareholders might consider to be in their best economic interests. Shareholders are probably more than a little curious to know what the Chavez administration is contemplating with regards to Las Cristinas and whether or not Crystallex is aware of or involved in these discussions, so that they can make their own assessments with regards to the possible ramifications.

Finally, in re-reading my post, I see for someone who has said at the very beginning of this note that I disagree with you, I seem to have said, “I agree” quite often!

By way of disclosure I should point out that I have been actively following Venezuela’s gold mining industry for many years, and have previously been a shareholder of Bolivar Gold (subsequently bought out by Gold Fields at a reasonable premium) and Crystallex (many, many months ago), but that I don’t have any financial interest in any of the Venezuelan miners (nor do my family or friends, to the best of my knowledge). I have never shorted a stock, nor do I (nor anyone I know) receive any compensation or benefit in any other way financially for me posting my views. I like to think (perhaps mistakenly!) that this allows me to maintain an unbiased, dispassionate view of the issues. Some might call it a hobby - I like to think of it more like a morbid fascination. :&gt;)

And while I don’t know the local miners in Bolivar State, I do have many “internet” acquaintances who are Crystallex shareholders, many of whom I know are quite exhausted from this whole multi-year embroglio. I sincerely wish a quick and positive resolution to the Las Cristinas saga in favour of Crystallex for their sake. I do mean that.

As for you, Manny, I wish you every success both at grad school, as well with your investments (including this one), and look forward to reading - and agreeing with - many more of your posts on this and other subjects in the future.